Apple's stock tumbles after company fails to deliver cheaper iPhone

SAN FRANCISCO — Investors punished Apple's stock Wednesday, driving it down more than 5% after the technology giant disappointed Wall Street by failing to announce a cheaper iPhone and a deal with China's largest wireless carrier.

Both bits of news had been widely expected at an event Apple held at its headquarters Tuesday.

Although a partnership with China Mobile is still imminent, shareholders and Wall Street analysts were not as confident that Apple will regain much momentum in emerging smartphone markets such as China without a more affordable phone.

"Apple is positioned as a very premium brand in China, priced out of reach of most consumers," said Patrick Moorhead, principal analyst for Moor Insights and Strategy. "The new iPhone 5c makes Apple more competitive, but not as much as many expected."

For the first time since the first iPhone appeared six years ago, Apple unveiled two new iPhones this week. The first is the iPhone 5s, a high-end smartphone that sports improved features such as an upgraded camera, a fingerprint sensor for better security, and a dramatically faster processor.

But analysts were more interested in the second phone, the iPhone 5c, which has a plastic shell and will come in any of five colors.

For months, speculation was rampant that the "c" stood for "cheap" and that the new phone would be offered at a lower price to target first-time smartphone buyers and consumers in emerging markets such as China, India and Brazil.

With Apple's overall growth slowing, investors and analysts believe that Apple's best opportunity to supercharge its growth is to become more competitive in these newer markets.

But carriers in those countries don't subsidize the cost of phones as they do in the U.S. As such, Apple's iPhones are too costly for average users and the company has been losing market share to rivals such as Samsung and its Android-based phones.

It turned out the rumors about the iPhone 5c's pricing were way off base. The phone is being sold for less than the iPhone 5s, but more than the iPhone 4s. People had been so focused on the iPhone 5c being a "cheap" phone that it took several hours after the event for the reality to sink in that the phone was much pricier than expected.

The 5c is still targeted at the same mid-priced market in which Apple has already been selling phones, said Walter Piecyk, an analyst at BTIG Research. "The introduction of colors could broaden that appeal for consumers, but that is hardly an innovation."

Expectations were also high that Apple would trumpet a deal to allow China Mobile to sell the iPhone. Apple has been pursuing a deal for years to get that nation's largest wireless carrier to offer the iPhone.

Those assumptions were fed, in part, by word that Apple was holding a special media event in Beijing on Wednesday. In addition, the release of a gold-colored iPhone 5s was seen as a bid to appeal to Asian customers.

In fact, the announcement didn't happen. But Apple did get a hopeful sign Wednesday when a Chinese regulator approved a license that would allow the iPhone to run on China Mobile's network.

Still, without a cheaper iPhone to sell in China, Apple's stock fell $26.93, or 5.44%, to $467.71 on Wednesday.

That followed a drop of 2.44% on Tuesday following the announcement. The plunge puts the stock back in the same territory it held in August before shareholder activist Carl Icahn announced he had bought a $1-billion stake in the company.

Of course, consumers will have the final say when the new phones go on sale Sept. 20. Apple will be launching the new phones in more markets simultaneously, including China for the first time, than ever before.

Observers will be watching closely to see if the new phones eclipse the 5 million iPhone 5 units that were sold in the first weekend of sales last year.

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